Access the full text.
Sign up today, get DeepDyve free for 14 days.
Loading next page...
/lp/wiley/capital-versus-performance-covenants-in-debt-contracts-AnyU2Q0zPz
References (90)
-
Peter Demerjian (2010)
Financial Covenants, Credit Risk, and the Resolution of UncertaintyCorporate Finance: Capital Structure & Payout Policies eJournal
-
R. Nash, Jeffry Netter, A. Poulsen (2003)
Determinants of contractual relations between shareholders and bondholders: investment opportunities and restrictive covenantsJournal of Corporate Finance, 9
-
Demerjian Demerjian (2011)
Accounting Standards and Debt Covenants: Has the “Balance Sheet Approach” Damaged the Balance Sheet?Journal of Accounting and Economic
-
L. Magee (1990)
R 2 Measures Based on Wald and Likelihood Ratio Joint Significance TestsThe American Statistician, 44
-
(1997)
F-Constraints-KZ= Index of financial constraints based on Kaplan and Zingales -
A. Costello, Regina Moerman (2010)
The Impact of Financial Reporting Quality on Debt Contracting: Evidence from Internal Control Weakness ReportsCorporate Governance & Accounting eJournal
-
S. Cleary (1999)
The Relationship between Firm Investment and Financial StatusJournal of Finance, 54
-
S. Myers (1977)
Determinants of corporate borrowingJournal of Financial Economics, 5
-
A. Sweeney (1994)
Debt-covenant violations and managers' accounting responsesJournal of Accounting and Economics, 17
-
Leftwich Leftwich (1983)
Accounting Information in Private Markets: Evidence from Private Lending AgreementsAccounting Review, 58
-
R. Rajan (1992)
Insiders and Outsiders: The Choice between Informed and Arm's-Length DebtJournal of Finance, 47
-
R. Watts (2003)
Conservatism in Accounting - Part I: Explanations and ImplicationsAuditing
-
(1998)
We measure all proxies at the end of the fiscal year before debt issuance. To reduce noise and achieve better comparability across measures, we rank observations into three groups -
H. Skaife, D. Collins, Ryan LaFond (2004)
The Effects of Corporate Governance on Firms' Credit RatingsCorporate Finance: Capital Structure & Payout Policies eJournal
-
Sudipta Basu (1997)
The conservatism principle and the asymmetric timeliness of earningsJournal of Accounting and Economics, 24
-
Pamela Paxton, R. Long (1997)
Regression Models for Categorical and Limited Dependent Variables -
Fazzari Fazzari, Hubbard Hubbard, Petersen Petersen (1988)
Financing Constraints and Corporate InvestmentBrookings Papers on Economic Activity
-
C. Hsiao (1989)
Analysis of Panel Data -
Steven Fazzari, Bruce Petersen, R. Hubbard (1987)
Financing Constraints and Corporate InvestmentNBER Working Paper Series
-
Martina Mittlböck, M. Schemper (1996)
Explained variation for logistic regression.Statistics in medicine, 15 19
-
A. Stuart, D. Cox (1971)
The analysis of binary data, 134
-
Kevin Chen, K. Wei (1993)
Creditors' decisions to waive violations of accounting-based debt covenantsAccounting review: A quarterly journal of the American Accounting Association, 68
-
Costello Costello, Wittenberg‐Moerman Wittenberg‐Moerman (2011)
The Impact of Financial Reporting Quality on Debt Contracting: Evidence from Internal Control Weakness ReportsJournal of Accounting Research, 49
-
Clifford Smith, Jerold Warner (1979)
On financial contracting: An analysis of bond covenantsJournal of Financial Economics, 7
-
Nini Nini, Smith Smith, Sufi Sufi (2009)
Creditor Control Rights and Firm Investment PolicyJournal of Financial Economics
-
R. Rajan, Andrew Winton (1995)
Covenants and Collateral as Incentives to MonitorJournal of Finance, 50
-
Richard Frankel, Chandra Seethamraju, Tzachi Zach (2006)
GAAP goodwill and debt contracting efficiency: evidence from net-worth covenantsReview of Accounting Studies, 13
-
A. Costello (2013)
Mitigating Incentive Conflicts in Inter-Firm Relationships: Evidence from Long-Term Supply ContractsIO: Firm Structure
-
Demiroglu Demiroglu, James James (2010)
The Information Content of Bank Loan CovenantsReview of Financial Studies, 23
-
Steven Sharpe (1990)
Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer RelationshipsJournal of Finance, 45
-
Valeri Nikolaev (2009)
Debt Covenants and Accounting ConservatismCorporate Law: Law & Finance
-
Eric Press, J. Weintrop (1990)
Accounting-based constraints in public and private debt agreements: Their association with leverage and impact on accounting choiceJournal of Accounting and Economics, 12
-
Roberts Roberts, Sufi Sufi (2009)
Renegotiation of Financial Contracts: Evidence from Private Credit AgreementsJournal of Financial Economics, 93
-
Ilia Dichev, Anne Beatty, Joseph Weber (2002)
The Role and Characteristics of Accounting-Based Performance Pricing in Private Debt Contracts -
S. Chava, Praveen Kumar, Arthur Warga (2010)
Managerial Agency and Bond CovenantsReview of Financial Studies, 23
-
Nicolae Gârleanu, Jeffrey Zwiebel (2004)
Design and Renegotiation of Debt CovenantsAmerican Finance Association Meetings (AFA)
-
David Ribar (2004)
Analysis of panel data: Second Edition, Cheng Hsiao, Cambridge University Press, Cambridge, United Kingdom, 2003, ISBN 0-521-81855-9, 382 pages, [UK pound]21.95International Journal of Forecasting, 20
-
Skinner Skinner (2011)
Discussion of ‘Accounting Standards and Debt Covenants: Has the “Balance Sheet Approach” Led to a Decline in the Use of Balance Sheet Covenants?’”Journal of Accounting and Economics
-
Eric Press, M. Beneish (1993)
Costs of technical violation of accounting-based debt covenantsAccounting review: A quarterly journal of the American Accounting Association, 68
-
Dechow Dechow, Ge Ge, Schrand Schrand (2009)
“Understanding Earnings Quality: A Review of the Proxies, Their Determinants and Their ConsequencesSSRN eLibrary
-
Peter Demerjian (2011)
Accounting Standards and Debt Covenants: Has the ‘Balance Sheet Approach’ Led to a Decline in the Use of Balance Sheet Covenants?Financial Accounting eJournal
-
Douglas Skinner (2011)
Discussion of 'Accounting Standards and Debt Covenants: Has the 'Balance Sheet Approach' Led to a Decline in the Use of Balance Sheet Covenants?'S&P Global Market Intelligence Research Paper Series
-
Ilia Dichev, Vicki Tang (2009)
Earnings Volatility and Earnings PredictabilityIO: Empirical Studies of Firms & Markets
-
N. Nagelkerke (1991)
A note on a general definition of the coefficient of determinationBiometrika, 78
-
S. Kaplan, Luigi Zingales (1997)
Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?Quarterly Journal of Economics, 112
-
Jensen Jensen, Meckling Meckling (1976)
Theory of the Firm: Managerial Behavior, Agency Costs and Ownership StructureJournal of Financial Economics, 3
-
R. West (1970)
An Alternative Approach to Predicting Corporate Bond RatingsJournal of Accounting Research, 8
-
Ashbaugh-Skaife (2006)
The Effect of Corporate Governance on Firms’ Credit RatingsJournal of Accounting and Economics, 42
-
Patricia Dechow, Weili Ge, Catherine Schrand (2010)
Understanding Earnings Quality: A Review of the Proxies, Their Determinants and Their ConsequencesJournal of Accounting and Economics, 50
-
Greg Nini, Amir Sufi, David Smith (2008)
Creditor Control Rights and Firm Investment PolicyS&P Global Market Intelligence Research Paper Series
-
Ball (2008)
The Debt-Contracting Value of Accounting Information and Loan Syndicate StructureJournal of Accounting Research, 46
-
Pingyang Gao (2012)
A Measurement Approach to Conservatism and Earnings ManagementFinancial Accounting eJournal
-
Joanne Duke, Herbert Hunt (1990)
An empirical examination of debt covenant restrictions and accounting-related debt proxiesJournal of Accounting and Economics, 12
-
R. Watts, J. Zimmerman (2006)
Positive Accounting Theory -
Richard Frankel, Lubomir Litov (2007)
Financial Accounting Characteristics and Debt Covenants -
M. Bradley, Michael Roberts (2004)
The Structure and Pricing of Corporate Debt CovenantsSPGMI: Compustat Fundamentals (Topic)
-
Hans Christensen, Valeri Nikolaev (2009)
Contracting on Mandatory Changes to GAAP : New Practice and Its Determinants -
Gary Gorton, James Kahn (2000)
The Design of Bank Loan ContractsReview of Financial Studies, 13
-
P. Aghion, P. Bolton (1992)
An incomplete contracts approach to financial contractingThe Review of Economic Studies, 59
-
Hans Christensen, Valeri Nikolaev (2010)
Loan Ownership Dispersion and Control over Mandatory GAAP Changes -
Ilia Dichev, Douglas Skinner (2002)
Large-Sample Evidence on the Debt Covenant HypothesisJournal of Accounting Research, 40
-
Nikolaev Nikolaev (2010)
Debt Covenants and Accounting ConservatismJournal of Accounting Research, 48
-
Matthew Billett, T. King, D. Mauer (2007)
Growth Opportunities and the Choice of Leverage, Debt Maturity, and CovenantsJournal of Finance, 62
-
D. Hosmer, S. Lemeshow (2000)
Applied Logistic Regression, Second Edition -
Gur Huberman, C. Kahn (1988)
Limited Contract Enforcement and Strategic RenegotiationThe American Economic Review, 78
-
Chava (2008)
How Does Financing Impact Investment? The Role of Debt CovenantsThe Journal of Finance, 63
-
Douglas Skinner (1993)
The investment opportunity set and accounting procedure choice: Preliminary evidence☆Journal of Accounting and Economics, 16
-
Joel Demski (2008)
Accounting and Economics -
Standard&Poor's. 2010. Rating Methodology: Evaluating the Issuer -
Gigler Gigler, Kanodia Kanodia, Sapra Sapra, Venugopalan Venugopalan (2009)
Accounting Conservatism and the Efficiency of Debt ContractsJournal of Accounting Research, 47
-
G. Maddala (1983)
Limited-dependent and qualitative variables in econometrics: Discriminant analysis -
Michael Roberts, Amir Sufi (2008)
Renegotiation of Financial Contracts: Evidence from Private Credit AgreementsBanking & Financial Institutions
-
C. Demiroglu, C. James (2010)
The Information Content of Bank Loan CovenantsCorporate Finance: Governance
-
Nina Meinel (2009)
Comparison of performance measures for multivariate discrete modelsAStA Advances in Statistical Analysis, 93
-
V. Ivashina, D. Scharfstein (2009)
Bank Lending During the Financial Crisis of 2008EFA 2009 Bergen Meetings (Archive)
-
Michael Jensen, W. Meckling (1976)
Theory of the Firm -
Lamont Lamont, Polk Polk, Saa‐Requejo Saa‐Requejo (2001)
Financial Constraints and Stock ReturnsReview of Financial Studies, 14
-
Toni Whited, Guojun Wu (2005)
Financial Constraints RiskSPGMI: Compustat Fundamentals (Topic)
-
Peter Demerjian (2007)
Financial Ratios and Credit Risk: The Selection of Financial Ratio Covenants in Debt ContractsContracting & Regulation
-
J. Horrigan (1966)
DETERMINATION OF LONG-TERM CREDIT STANDING WITH FINANCIAL RATIOSJournal of Accounting Research, 4
-
P. Asquith, Anne Beatty, Joseph Weber (2004)
Performance Pricing in Bank Debt ContractsCorporate Finance: Capital Structure & Payout Policies eJournal
-
Mitchell Berlin, Loretta Mester (1992)
Debt covenants and renegotiationJournal of Financial Intermediation, 2
-
Ryan Ball, Robert Bushman, Florin Vasvari (2007)
The Debt Contracting Value of Accounting Information and Loan Syndicate StructureManagerial Accounting
-
R. Ball, Lakshmanan Shivakumar (2005)
EARNINGS QUALITY IN UK PRIVATE FIRMS: COMPARATIVE LOSS RECOGNITION TIMELINESSJournal of Accounting and Economics, 39
-
Sreedhar Bharath, Jayanthi Sunder, S. Sunder (2008)
Accounting Quality and Debt ContractingThe Accounting Review, 83
-
S. Chava, Michael Roberts (2007)
How Does Financing Impact Investment? The Role of Debt CovenantsWharton Research Data Services (WRDS) Research Paper Series
-
Asquith (2005)
Performance Pricing in Bank Debt ContractsJournal of Accounting and Economics, 40
-
R. Kaplan, Gabriel Urwitz (1979)
Statistical Models of Bond Ratings: A Methodological InquiryThe Journal of Business, 52
-
Owen Lamont, Christopher Polk, Jesus Saa-Requejo (1997)
Financial Constraints and Stock ReturnsChicago Booth: Fama-Miller Working Paper Series
-
Frank Gigler, Chandra Kanodia, H. Sapra, Raghu Venugopalan (2009)
Accounting Conservatism and the Efficiency of Debt ContractsFinancial Accounting eJournal
- Publisher
- Wiley
- Copyright
- Copyright © 2011
- ISSN
- 0021-8456
- eISSN
- 1475-679X
- DOI
- 10.1111/j.1475-679X.2011.00432.x
- Publisher site
- See Article on Publisher Site
Abstract
ABSTRACT Building on contract theory, we argue that financial covenants control the conflicts of interest between lenders and borrowers via two different mechanisms. Capital covenants control agency problems by aligning debt holder–shareholder interests. Performance covenants serve as trip wires that limit agency problems via the transfer of control to lenders in states where the value of their claim is at risk. Companies trade off these mechanisms. Capital covenants impose costly restrictions on the capital structure, while performance covenants require contractible accounting information to be available. Consistent with these arguments, we find that the use of performance covenants relative to capital covenants is positively associated with (1) the financial constraints of the borrower, (2) the extent to which accounting information portrays credit risk, (3) the likelihood of contract renegotiation, and (4) the presence of contractual restrictions on managerial actions. Our findings suggest that accounting‐based covenants can improve contracting efficiency in two different ways.
Journal
Journal of Accounting Research – Wiley
Published: Mar 1, 2012